This results from a virtuous cycle of computing. The early leaders in computing invested billions in capital into research and development. That, in turn, drove down per unit storage and compute costs, which encouraged further computer usage - which the early leaders responded to with more investment.

The new economics of IT has three far-reaching implications for how organisations think about their business.

Simultaneously, small user niches that previously wouldn’t have been able to sustain their own market have now become profitable, since the entire world is now network addressable. That’s a lesson that Medium and LinkedIn have quickly learned, as they’ve capitalised on the ability of even highly-specialised blogs to reach large global audiences.

2/ Competition is global and winner-takes-all

The Internet era has allowed global digital companies to rapidly enter and acquire market share in new countries. Amazon isn’t bound by geography - and when it brings its incredible global reach, efficient payment and delivery and automated data collection to Australia next year, it’ll be competition the likes of which local retailers have never seen before.

The threat posed by digital competitors is especially critical because of the nature of platform economics. The first digital movers - think eBay, Amazon and Uber - are setting up rapidly scalable platforms to capture almost the entire market. Network effects - the increase in a product’s value as more people make use of it - established those companies as market leaders. Uber knows its powerful network of drivers and riders will generate massive profit - that’s why it’s been so willing to burn substantial losses over the last eight years. The same is true of Amazon and Twitter. Companies that wait too long risk being locked out of the market entirely.

The new economics of IT have changed all that. Today, lengthy CAPEX cycles for IT should be just as obsolete as the hardware of that era. Digital teams can go onto AWS and rapidly experiment with and iterate their ideas, without waiting months for crates of hardware and software to arrive. If they make use of open source software, they can avoid paying for licenses altogether.

That’s the way start-ups have been operating for the last decade. They don’t need to buy masses of software and hardware to run their business. They can pay by consumption.

Brownfields need to be acting like the very start-ups trying to disrupt them, if they want to reduce their cycle times and cost. They can now afford to use a credit card to buy services. That provides a massive opportunity for established businesses to streamline their procurement processes, and to reform their governance structures to suit the age of OPEX investment. Think of the millions large employers used to pay for Solaris, Oracle RDMBS, WebSphere, Oracle SOA Suite, Microsoft Windows servers, SQL servers, BizTalk servers - and data centres, physical servers, routers and firewalls. They can now redistribute that money and effort to designing, building and testing world-class digital services.

The new economics of IT is a massive enabler for great digital services. Cheap IT and agile procurement means experimentation isn’t risky anymore - it’s the only way to manage risk, by getting continuous feedback on how our services really meet user needs.

That’s a challenge organisations need to take on if they want to survive, and thrive, in the digital era.

--

Paul Shetler is an adviser to governments and organisations around the world who are transforming their business. He is a speaker on digital transformation and organisational change. Paul was the CEO of the Digital Transformation Office and the Chief Digital Officer of the Australian Government’s Digital Transformation Agency.